The Financial Conduct Authority (“FCA”), together with the Bank of England (“BofE”) (together, the “Regulators”) are currently investigating how technology can be used to make it easier for firms to meet their regulatory reporting requirements and improve the quality of information they provide. Together, they hope to create a model driven and machine readable regulatory environment that will fundamentally change how the financial services industry reports its regulatory information. They have called this project “Digital Regulatory Reporting”.
As firms often find it challenging to meet certain regulatory reporting requirements, owing to reporting being resource intensive, expensive and time consuming, many firms are often forced to employ support services to help them meet these requirements. The Regulators therefore believe that machine executable regulatory reporting has the potential to lower costs by improving efficiency, simultaneously improving the accuracy of the reported data and thereby improving the Regulators ability to deliver effective supervision and better combat financial crime.
During a two-week TechSprint in November 2017, a week-long event aimed at identifying potential solutions to help improve the efficiency of regulatory reporting, the Regulators, together with 100 developers from across 30 organisations, including technological giants such as Hitachi, explored how technology can make the current system of regulatory reporting more accurate, efficient and consistent. The TechSprint was considered a success, resulting in participants developing a proof of concept (the “Proof of Concept”) to present how machine executable regulatory reporting can be technologically feasible.
The Proof of Concept means that firms would be able to map their regulatory requirements directly to the data that they hold, creating the potential for automated, straight through processing of regulatory returns. As mentioned above, the benefits of a more efficient system are clear for both Regulators and firms by reducing costs, speed and barriers to entry with potentially lower ongoing compliance costs in the future.
The FCA’s call for input (the “Call for Input”) published in February this year outlines the technical steps of the Proof of Concept. The FCA asked for views on how they can improve the process and requested further feedback and guidance on some of the wider issues technology may cause in regulatory reporting, closing feedback earlier in June this year. However, the FCA will be publishing a feedback statement summarising the views received and their proposed next steps in September 2018.
In September this year, the FCA will publish a feedback statement bringing together the results of the Call for Input and other industry discussions.
The Regulators, together with several other organisations, such as Barclays, Credit Suisse and the University College London are working towards a six-month pilot to build upon the Proof of Concept to consider the feasibility of scaling up the work. The pilot will consider two “use cases”, one focused on retail reporting and one focused on wholesale reporting. The aim of the pilot is to develop a working solution that demonstrates the end-to-end process of having machine-readable regulatory reports and how the pilot will fare in regards to cost and benefits compared to the current system of reporting. For more information on the pilot, please read the FCA’s Terms of Reference (link provided below).
The FCA is actively encouraging industry feedback, but does warn that any firm that wishes to participate in the pilot will need to be self-funded. However, firms who are unable to contribute staffing resources or time but still wish to have some input are able to so via written submission and/or roundtable events held by the FCA. As transparency is a key part of the pilot, the FCA will provide opportunities for firms to provide feedback as the investigations go forward with regular updates made after each discussion and several opportunities for firms to provide feedback as the pilot progresses.
To access the FCA’s Terms of Reference, please click here.
To access the FCA’s Call for Input, please click here.
To access information on the FCA’s TechSprint, please click here.
For further information, including how to participate in the pilot, please email firstname.lastname@example.org
For more information on the Digital Regulatory Reporting project and Fintech, Cleveland & Co external in-house counsel, your specialist outsourced legal team are here to help.